1Q24 sales growth was slow but net profit should still be strong. Thanks to the healthy sell-out growth and the less-than-one-month Amazon channel inventory, plus the upgrades in products (e.g., Turbo Blaze air fryer, Dual Zone air fryer, the pet-friendly air purifier and vacuum cleaner), orders growth should normalize in the coming quarters, in our view. With an undemanding valuation of 7x FY24E P/E, we maintain BUY with a TP of HK$ 6.79, based on 11x P/E, well supported by 13%/16% sales/NP CAGRs during FY23-26E.

Sell-in growth was slow but sell-out growth was healthy in 1Q24. Vesync's gross sales growth increased by only 1% in 1Q24, slightly below our estimates and slowing down from 27% sell-out growth in 3Q23 and 16% sell-in growth in 2H23. The company attributed this to: 1) insufficient supply of hot-selling products and 2) decreases in orders from Amazon (due to their preference to de-stock). By channel, sales from Amazon declined by 7% while sales growth from non-Amazon channels (mostly offline) was at 38%. However, we believe the end-demand is still healthy as the company also announced a 13% increase in sell-out. Moreover, profit margin should have improved, as the level of discounts and promotion was also reduced. Hence, we do expect net profit growth in 1Q24E to still be decent.

FY24E guidance remains intact (we are conservatively positive). Management reiterated its FY24E guidance (20%+ sales growth and 10%+ NP margin) and we are also positive (even though CMBI est. is at 15%+ and 13%+ respectively), because the inventory in the Amazon channel is fairly low, at a less-than-one-month level. We expect the GP margin to be stable at 45%-46% in FY24E (a drop from 46.9% in FY23), as favorable factors like the depreciation of RMB will ease while the freight rate may increase mildly due to Red Sea conflicts. For NP margin, we believe it can be at around 13.5% (from 13.2% in FY23), as the operating leverage will offset the headwind in GP margin and the small increase in A&P expenses.

Maintain BUY and fine-tune TP to HK$6.79. Considering the robust growth (13% sales and 16% net profit CAGR during FY23-26E), we believe its current valuation of 7x is still highly attractive. Our TP is based on 11x FY24E P/E (rolled over from 14x FY23E P/E, vs 3-year average of 12x).